Crestar Company reported net income of $87,400 on 18,000 average outstanding common shares. Preferred dividends total $11,800. On the most recent trading day, the preferred shares sold at $48 and the common shares sold at $78. What is this company's current price-earnings ratio? (Do not round your intermediate calculations.)
A)16.06
B)18.57
C)20.59
D)None of these answers choices are correct.

Question

Quizplus · Accepted Answer

The price-earnings ratio is calculated as the market price per share divided by the earnings per share (EPS). First, calculate EPS: (Net Income - Preferred Dividends) / Average Outstanding Common Shares = ($87,400 - $11,800) / 18,000 = $4.20. Then, the P/E ratio is $78 / $4.20 = 18.57.

Crestar Company Reported Net Income of $87,400 on 18,000 Average